DECISION
1. This is
the appeal by Lifesmart Limited (“the company”) against the penalty of £400
imposed for late filing of the 2009-10 end of year return of payments under
PAYE (“P35”).
2. The
Tribunal accepted the appeal and discharged the penalties.
Review
of previous Tribunal Decision
3. The
company previously appealed this penalty to the First-tier Tribunal on 10
February 2011. That appeal was determined on 16 May 2011 as a default paper
case under Rule 26 of the Tribunal Procedure (First-tier Tribunal) (Tax
Chamber) Rules 2009 (“the Tribunal Rules”).
4. A full
Decision was issued to the parties on 30 July 2011.
5. On 16
September 2011 the company sought to appeal that Decision to the Upper
Tribunal.
6. On
receiving an appeal against a Decision of the First-tier Tribunal, Rule 40(1)
of the Tribunal Rules requires the Tribunal to consider whether to review the
Decision. The Tribunal may only review a Decision if it is satisfied that it
contains an error of law.
7. On
receiving the company’s appeal, the Tribunal was satisfied that there
was an error of law (within the meaning determined by Edwards v Bairstow & Harrison
(1955) 36 TC 207) in
the Decision, and that it should therefore be reviewed.
8. The outcome of that review was that the
Decision was set aside. The
Tribunal directed that the appeal be considered afresh (again as a default paper case) by a differently constituted Tribunal.
The parties were notified of this on 20 December 2011.
9. This Notice sets out the Decision of that differently
constituted Tribunal.
The
issues in the case
10. The issues in the case are whether
the return was delivered late; if so, whether the company had a reasonable
excuse, and whether HMRC’s delay in sending out the penalty notices was “fair.”
The law
11. The statutory provisions, so
far as relevant to this case, and as they applied for the tax year 2009-10, are
set out below.
12. Regulation 73 of the Income
Tax (PAYE) Regulations 2003
is headed “annual return of relevant payments liable to deduction of tax (Forms
P35 and P14).”
13. Regulation 73(1) requires
that an employer “must deliver to the Inland Revenue” its P35 return on or
before 19 May following the end of a tax year.
14. Regulation 205 states that
employers “must deliver a relevant annual return by an approved method of
electronic communication.”
15. Regulation 192 states that
“for the purpose of these Regulations, information is taken to have been
delivered to an official computer system by an approved method of electronic
communications only if it is accepted by that official computer system.”
16. Reg. 73(10) states that Section
98A of Taxes Management Act 1970 (“TMA”) applies if the obligation to deliver
returns, set out in Reg 73(1), is not complied with.
17. TMA s 98A provides for fixed
penalties which apply “where this section applies in relation to a provision of
regulations, any person who fails to make a return in accordance with the
provision.”
18. The
taxpayer’s right of appeal against the penalty and the Tribunal’s powers are at
TMA s 100B.
19.
The taxpayer can appeal a penalty on the grounds of reasonable excuse.
The relevant provisions are set out at TMA s 118(2), which, so far as is
material to this appeal, provides:
“…where
a person had a reasonable excuse for not doing anything required to be done he
shall be deemed not to have failed to do it unless the excuse ceased and, after
the excuse ceased, he shall be deemed not to have failed to do it if he did it
without unreasonable delay after the excuse had ceased.”
The
evidence
20. The Tribunal was provided
with the correspondence between the parties, and between the parties and the
Tribunals Service. In addition, HMRC supplied:
(1)
A page headed “HM Revenue & Customs. Summary search results” for the
company.
(2)
A page headed “Frequently asked questions: can I send a test submission
of my employer annual return” from the HMRC website.
(3)
A screenprint from the BusinessLink website headed “File your Employer
Annual Return online: P35 and P14s: acceptance and rejection messages when you
file online.”
21. The company supplied two
emails from [email protected]. The first is
dated 18 May 2010, the second, 3 November 2010.
The
facts
22. On the basis of the evidence
provided, I find the following facts.
23.
The company logged onto the HMRC site on 18 May 2010, a day before the
statutory deadline of 19 May. After sending the return, the company received an
email from the HMRC website which read:
“Successful receipt of online submission for
Reference []
Thank you for sending the PAYE End of Year
submission online.
The submission for
reference [] was successfully received on 18-05-2010. If this was a test
submission, remember you still need to send your actual Employer Annual Return
using the live transmission in order for it to be processed.”
24. The company understood from
this email that the return had been submitted successfully.
25. By Notice dated 27 September
2010, HMRC issued a penalty for not filing the P35. It charged the company £100
per calendar month for the period from 20 May 2010 to 19 September 2010, a
period of four months. The penalty was therefore £400.
26.
By letter dated 7 October 2010, Mr Alan Sharp, the company’s Finance
Director, wrote to HMRC saying:
“This morning I received
the penalty notice for £400...I attach a copy of the online successful
submission reference received from HMRC on 18 May 2010. This proves our
submission was on time and I therefore look forward to receiving revised correspondence
eliminating the penalty notice.”
27. By letter dated 22 October
2010, under the heading “why I do not think you have a reasonable excuse” HMRC
informed the company that “the P35 that you submitted on 18 May 2010 at 13.43pm
was a test submission.”
28. This letter was received by
the company in the final week of October. On 3 November 2010 the company
submitted the return in “live mode”.
29. HMRC responded to the
submission by sending an email which (apart from the date of receipt) was
identical to that received by the company on 18 May 2010.
Mr Sharp’s submissions on behalf of the company
30. Mr Sharp says that the
company believed it had made a successful, timely submission of the P35. Since
no message was received “highlighting any errors and no email was received
informing the company that the submission had errors or was unsuccessful” the
company reasonably concluded that it had complied with its statutory duty.
31. He said that “the replies
from the HMRC website are identical and confirm a successful submission of the
P35”. Their identical nature “makes it impossible for an employer to know
whether their submission is successful.”
32. He asks “how can a reply
that states ‘successful receipt of online submission’ be in actual fact unsuccessful?”
and “how can a company prevent a penalty if it is not aware that its submission
has been unsuccessful?”
33. He also complains that the
penalty is unfair as “the penalty increases on a monthly basis but the company only
receive notification of the penalty four months after it has started accumulating.
The system does not offer the employer the possibility of remedying the situation,
thus mitigating the penalty.”
34. Finally, he says that was
not until the company received the HMRC letter dated 22 October 2010 that Mr
Sharp realised that the original submission had not been accepted as a live
return.
35. The company filed the return
on 3 November, soon after the HMRC letter had been received, and thus the reasonable
excuse continued throughout the period.
HMRC’s submissions
36.
HMRC say that the return was delivered in “test” mode and that:
“if an employer
chooses to send a test submission the test submission will check against HMRC
quality standards and tell of any mistakes. The message sent by HMRC advises if
this is a test submission you must ensure you send a live return. This
information is available on the HMRC website.”
37.
They also say that information about online filing and the messages is
available on the HMRC website and the BusinessLink website. The BusinessLink
page includes the following:
“Acceptance and Rejection messages when you file
online
After you file your Employer Annual
Return online, you'll get an acceptance or rejection message through the
software or service you use. If you've provided HMRC with an email address,
you'll also get an email message. These messages are usually issued within a
minute of filing, but it can take longer if your return covers a large number
of employees.
If your return is successful, you'll
get the following messages:
·
Software - '9004: the EOY Return has been processed
and passed full validation'
·
Email - 'The submission for [your PAYE reference]
was successfully received on [date]. If this was a test transmission, remember
you still need to send your actual Employer Annual Return using the live
transmission in order for it to be processed'
If your return is rejected, you'll get
the following message instead:
·
Software - your message will highlight the area(s)
of your return that have led to its rejection.
·
Email - 'The submission for reference [your PAYE
reference] was received on [date]. Unfortunately it could not be accepted as it
failed data checks. To correct this, please use the help provided within the
software you used to complete your form and send it again'
Returns filed before the start of
the new tax year
If you
file your annual return before 6 April...HMRC will still let you know straight
away whether the return has been accepted or rejected...”
38. The web guidance (provided
without a heading or other indication of where it is located on the HMRC site)
repeats the text above, but without the final paragraph.
39.
HMRC also provided the Tribunal with the following FAQ, which is
identified as coming from the “Online Services” part of their website. It says:
“Can I send a test submission of my
Employer Annual Return.
Yes, if your software allows you to send
a sample of P14s and a P35 as a test HM Revenue & Customs will check them
against our quality standards and tell you about any mistakes. This service is
aimed at large employers who may find it convenient to check for errors before
making a complete return.
If your
test submission passes HMRC quality checks and you receive an acceptance message
and an email acknowledgement, you must ensure that you send a live return. If you
are not sure if you have sent a test or live return, please telephone the HMRC
Online Services helpdesk to check the position. This is particularly important
when you need to meet a statutory deadline.”
40. HMRC submit that the company
does not have a reasonable excuse, which they define as “an exceptional event
beyond a person’s control which prevented the return from being filed by the
due date, for example, severe illness or bereavement.”
41. In response to Mr Sharp’s
criticisms of the delayed issuance of the penalty notice, they say that the
penalties are provided for by statute and “do not depend on HMRC giving
reminders”.
42.
Furthermore, they say (quoting verbatim):
“This is a structured programme
designed to enable penalties to be issued regularly throughout the year, rather
than waiting for the late Return to be submitted and then issue a final
penalty. These penalties, although aimed at encouraging compliance and will
have the effect of reminding are not designed to be reminders for the
outstanding return.”
The
first issue: was the return “delivered”
43. There is no penalty if the
return was “delivered” to HMRC on or before the due date of 19 May 2010.
44. HMRC say that the return was
sent in “test” mode. It is clear from the company’s evidence that it intended
to submit a “live” return. However, I accept HMRC’s evidence that it was, as a
question of fact, sent in “test” mode.
45. The first issue is whether a
return in “test” mode has been “delivered” within the meaning of the
Regulations.
46. Regulation 192 states that
“for the purpose of these Regulations, information is taken to have been
delivered to an official computer system by an approved method of electronic
communications only if it is accepted by that official computer system.”
47. Was the return “accepted” by
the HMRC computer system? The word “accept” is not defined in the Regulations,
but it is clear from the context that it means something more than “delivered”.
48.
The Oxford English Dictionary’s primary definition of “accept” is “to
take or receive (something offered) willingly.” The secondary definition is
archaic and obsolete; the third reads:
“To consider or
recognize (a person or thing) to be a specified thing, or to have a specified
quality; to take as authentic, valid, or adequate; to believe (a statement or
theory).”
49. The fourth definition can be
summarised as “to consent”, while the fifth is “to agree (in the context of a
writ) to consider as validly served.”
50. These definitions show that
for a proffered item to be “accepted”, the recipient must agree or consent to
take the item: mere receipt is insufficient.
51. How does this linguistic
analysis apply in the context of a P35 sent in “test” mode? Has that return
been “accepted” by the HMRC computer?
52. We know from the “successful
submission receipt” that “the submission...was successfully
received.” But the P35 was not actioned by the HMRC system because it was not
treated as a final submission. It was not “taken as...valid or adequate.” Through
its computer system, HMRC did not “consent” to treat it as a submitted P35.
53. Taking into account both the
statutory context and the dictionary definitions of “accept”, I
find that the P35 was not “accepted” by the HMRC computer.
54. As a result it was deemed
not to have been delivered even though it was, as a question of fact, received
by the HMRC computer.
55. As a result, I find that the
company’s P35 return was not delivered until 3 November 2010 and so was late.
The
second issue: reasonable excuse
56. I move on to consider whether
the company has a reasonable excuse for the late delivery.
The online guidance
57. HMRC imply that a reasonable
person who had properly considered its online guidance, would thereby have been
prevented from believing a return had been delivered when it had, accidentally,
been submitted in “test” mode.
58. I do not agree. The guidance
on the BusinessLink site, and replicated somewhere (although the Tribunal was
not told where) on the HMRC website, makes no mention of the fact that an
employer can receive a successful submission receipt (without in fact having
made a successful submission) because he has accidentally sent the return to
HMRC in “test” mode.
59.
The messages employers receive from HMRC are binary in nature:
“you'll get an acceptance
or rejection message through the software or service you use”
and
“If your return is successful,
you'll get the following messages...if your return is rejected, you'll
get the following message instead.”
60. The extra
paragraph in the BusinessLink text also reflects this binary approach: “If you
file your annual return before 6 April...HMRC will still let you know straight
away whether the return has been accepted or rejected...”
61.
It is only if the employer reads the FAQ on “Can I send a
test submission” that he finds a hint that there might be a problem. He is
told:
“if you are not sure
if you have sent a test or live return, please telephone the HMRC Online
Services helpdesk to check the position. This is particularly important when
you need to meet a statutory deadline.”
62. But this begs an important
question: why would the a reasonable employer, uninterested in test returns, read
this FAQ at all?
63. Moreover, the reasonable
employer who has received a “successful submission receipt” and believes he has
sent a live return, is not unsure whether he has sent a live return – he
has no reason to think he has sent a test return at all.
64. I therefore reject HMRC’s submission
that the reasonable employer would have been alerted by this online guidance to
the risk of accidentally sending a test return.
Is reasonable belief a
reasonable excuse?
65. There is no doubt that Mr
Sharp believed that he had submitted the company’s P35 on 18 May. Given the
quality of the online guidance, and his receipt of the “successful submission”
receipt, I find that this belief was reasonable.
66. The next question is whether
a reasonable belief can be a reasonable excuse.
67. HMRC say that a reasonable
excuse is “an exceptional event beyond a person’s control which prevented the return
from being filed by the due date, for example, severe illness or bereavement.”
68. This is clearly too narrow.
This Tribunal has held that the meaning of “reasonable excuse” is “a matter to
be considered in the light of all the circumstances”, see Rowland v HMRC
[2006] STC (SCD) 536 at [18], and, more recently, that “an excuse is likely to
be reasonable where the taxpayer acts in the same way someone who seriously
intends to honour their tax liabilities and obligations would act”, see B&J
Shopfitting Services v R&C Commrs [2010] UKFTT 78 (TC) at [14].
69. That a genuine, honest and
reasonable belief provides a defence in common law has long been accepted, see Reg
v Tolson (1889) 23 QBD 168, 181; this principle was more recently expanded to include a
genuine but mistaken belief by the House of Lords in R
(ex p B) v Director of Public Prosecutions [2000] UKHL 13.
70. In the recent case of R v
Unah [2011] EWCA Crim 1837, while noting the caveat in that case
that “it is only with caution that one should seek to draw analogies with other
statutory contexts where the concept of reasonable excuse is employed”, the
Court of Appeal found that a genuine and reasonable belief was sufficient to
amount to a reasonable excuse.
71. On the facts provided, Mr
Sharp genuinely and honestly believed that the P35 had been filed. I have found
that his belief was reasonable, and I also find that it provides the company
with a reasonable excuse for the late filing of the return.
72. I also find that the P35 was
then filed “without unreasonable delay” after Mr Sharp discovered the problem,
and so the requirements of TMA s 118(2) are satisfied.
The
third issue: fairness
73. Mr Sharp argued that HMRC’s
approach was not fair. In view of my decision on reasonable excuse, it has not
been necessary for me to consider this question.
Decision
74. The appeal is allowed and
the penalty of £400 set aside.
75. This document contains full
findings of fact and reasons for the decision. Any party dissatisfied with this
decision has a right to apply for permission to appeal against it pursuant to
Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules
2009. The application must be received by this Tribunal not later than 56 days
after this decision is sent to that party. The parties are referred to
“Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)”
which accompanies and forms part of this decision notice.
Anne Redston
TRIBUNAL PRESIDING MEMBER
RELEASE DATE: 16 February 2012
